Sizing your solar power project: Energy banking should be a bonus, not the business case 

Solar power is generated according to the availability of sunlight. A business, however, consumes electricity according to its operating hours, production schedule, and equipment load. The two do not always match. 

Energy banking, often called grid banking, was introduced to help manage this mismatch. It allows a commercial or industrial consumer procuring renewable energy through open access to inject surplus power into the grid and receive a credit that can be adjusted against consumption at another time, subject to the applicable state regulations. 

The grid is therefore sometimes described as a virtual battery. But unlike a battery, it does not physically store the electricity. The distribution company absorbs the power when it is injected and supplies electricity when the consumer uses the corresponding credit. This distinction matters because electricity supplied during solar hours and electricity required during a high-demand period do not necessarily carry the same value or cost. 

As renewable capacity grows, larger volumes of solar power enter the grid during the day. At the same time, distribution companies must continue meeting demand when solar generation falls. Banking regulations are consequently being revised to account for this mismatch. 

Settlement periods, banking charges, withdrawal conditions, permitted quantities and the treatment of unused credits differ across states. These rules can also change during the operating life of a solar project. 

A business should therefore treat energy banking as an additional benefit—not the basis on which its project becomes financially viable. 

Start With When Electricity Is Consumed 

Annual electricity consumption can indicate the overall scale of a business’s energy requirement. It cannot show whether that requirement coincides with solar generation. 

Consider a manufacturing facility that begins production at 8:30 am. The solar plant may start generating earlier, when the facility has little corresponding load. Consumption may then rise gradually as production lines are switched on, fall during breaks, and change again across shifts. 

A monthly bill cannot reveal these variations. Even daily consumption data may be too broad. 

Developers must analyse the customer’s load in 15-minute intervals to determine: 

• how much solar power the business can consume directly; 
• when surplus generation is likely; 
• how much electricity may need to be imported from the grid; and 
• how changes in banking conditions could affect the savings. 

This analysis can materially change the recommended project capacity. 

In one project we evaluated, the customer’s consumption initially appeared to support a solar plant of approximately 2 MW. Once its operating pattern was examined, the appropriate capacity was closer to 900 kW. A larger plant would have produced substantial power during periods when the facility could not consume it directly. The gap was largely one of timing: generation began well before the 8:30 am production start, dipped in and out as lines paused during shift breaks, and rarely aligned with the facility’s actual load throughout the day. Sized at 2 MW, much of that output would have been exported as surplus rather than used on site; at 900 kW, a far greater share is consumed directly, which is what protects the savings if banking is curtailed. 

Under a liberal banking arrangement, that surplus could receive a credit for later adjustment. If the settlement period is shortened or unused credits lapse, the same surplus may deliver little or no value. 

Project capacity should therefore be based on usable generation, not just available space or the customer’s total annual consumption. 

Time-of-Day Tariffs Change the Calculation 

Accurate load matching becomes even more important under Time-of-Day tariffs. 

Under these tariffs, the energy charge varies across different periods. Electricity may cost less during solar hours and more during peak-demand periods. 

This means energy should not automatically be treated as having the same economic value, regardless of when power is injected and withdrawn. The value of banking depends on the applicable settlement and ToD framework. 

A project can therefore appear attractive when assessed using annual generation and an average grid tariff, but deliver different savings once the timing of generation and consumption is considered. 

The calculation must account for: 

• the solar power consumed directly in each time block; 
• the grid tariff that this power replaces; 
• the surplus power eligible for banking or another form of settlement; and 
• the electricity imported during higher-tariff periods. 

The objective is not to install the largest possible solar plant. It is to identify the capacity that reduces the customer’s total electricity cost under realistic operating and tariff conditions. 

When Does Battery Storage Make Sense? 

When banking becomes more constrained, battery storage may appear to be the obvious alternative. A battery can store surplus solar power and supply it when the business needs it. 

It can also reduce peak demand, support critical loads, or lower diesel-generator use. However, the first response to tighter banking should not automatically be to add storage. It should be to optimise solar capacity against the customer’s load. Storage should then be evaluated for the remaining mismatch.  

Storage adds cost. Its value depends on the customer’s consumption pattern, the amount of surplus solar available, the difference between solar-hour and peak-period tariffs, and the operational cost of a power interruption. 

For a facility with significant evening demand or high peak-period charges, a battery may reduce the overall power cost. For a business that consumes most of its electricity during solar hours, correctly sizing the solar plant may provide better returns without storage. 

Solar and storage must therefore be evaluated together. A battery makes commercial sense only when the savings and operational benefits it creates justify its cost. 

Test the Project Against Regulatory Change 

A solar asset may operate for more than two decades. The banking rules available when it is commissioned may not remain unchanged throughout that period. 

Before investing, a business should test the project under different scenarios: 

• What percentage of the solar power will be consumed directly? 
• What happens to the returns if no banking benefit is available? 
• How do the savings change under different banking charges and settlement periods? 
• What is the effect of Time-of-Day tariffs? 
• Does storage improve the financial outcome? 

Project economics should be tested under a conservative banking scenario, including a no-banking downside case. The project should remain economically viable even if banking benefits are reduced/withdrawn over time. Available banking benefits can then be added to assess the additional savings they create. 

This does not mean that energy banking should be ignored while sizing the solar project. Rather, it means that the project’s fundamental economics should not depend upon a regulatory provision that may change during the operational lifetime of the project.  

A well-sized project creates value from the electricity the customer can use. Energy banking can increase that value, but it should not be what makes the project work.